No Assurances - Insurance coverage for the events of September 11 will hinge upon the interpretation of often ambiguous policy language

October 1, 2002

On September 11, 2001, the world saw two planes crash into two different buildings at New York's World Trade Center some 16 minutes apart, igniting two separate fires and ultimately resulting in the collapse of each of those buildings and causing damage to other buildings in the vicinity. The world also learned of a plane crashing into a field in Pennsylvania and saw another plane crash into the Pentagon. Four planes had been hijacked, belonging to two different airlines leaving three different airports with two cities as their destinations. The destruction of the WTC and its continuing aftermath was transmitted globally, live and nonstop, via television and other media, for the whole world to see. The collapse of the WTC towers created reverberations both near and far. Not only were businesses near ground zero affected but businesses throughout the country felt the effects of the collapse, with many suffering losses resulting from the interruption of business operations and the imposition of civil authority. What exactly did the world see that day? Was the loss at the WTC towers, and the resulting damage, attributable directly or indirectly to one series of similar causes? Or was the loss and damage at each tower attributable to two separate and dissimilar causes? Can an event be one thing to the general public and another thing for insurance purposes? And does the distinction make a difference? What insurance is applicable to these losses? What rights, duties, and obligations do the insurers of the affected properties and persons have to their policyholders? The answers lie in how the applicable insurance contracts are phrased, interpreted, and applied.

Several of the WTC suits involve "occurrence" issues under contracts of insurance that were either not issued or not fully negotiated as of September 11. These, in particular, have captured the imagination of the legal and insurance communities with the intellectual aspects of the contractual issues presented.

One Occurrence or Two

The proposed WilProp form included an "occurrence" definition providing that losses attributable to any cause or series of causes would be subject to a single occurrence limit. Specifically, the proposed occurrence language in the WilProp form provided: "Occurrence shall mean all losses or damages that are attributable directly or indirectly to one cause or one series of similar causes. All such losses will be added together and the total amount of such losses will be treated as one occurrence irrespective of the period of time or area over which such losses occur."

This issue of one occurrence or two is not a simple matter of how many planes hit how many buildings and started how many fires. The answer lies in whether the court finds the WilProp form to be the basis for all the policies, including the Travelers policy, and if so, how the court then applies the wording of the form. Simply stated, this issue as to the number of occurrences is contractually driven. To be resolved by the application of New York law, evidence regarding underwriting negotiations and expectations of the parties regarding the terms and conditions of the insurance contracts has been held relevant to the determination of whether the WilProp form should be applied or if there is some other definition of "occurrence" that might be more reasonably applied. Once it has been determined what specific policy language was negotiated and/or intended, the focus will move to applying the facts of the loss to the particular language adjudged to be part of each particular insurance contract.

Business Interruption

Among the other September 11 insurance claims, claims of business interruption have been asserted by businesses in the New York and Pentagon areas and by businesses located far away from ground zero and the prohibited zones of lower Manhattan. The losses and insurance claims arising from September 11 encompass a broad array of elements. After the attacks in New York, Washington, and Pennsylvania, the Federal Aviation Administration shut down the country's commercial airports, leaving stranded passengers, including tourists and people traveling on business. In New York, civil authority was imposed until September 17, 2001. Each of the prohibited zones in the WTC area had their own level of allowable activity. As a result of the damaged and contaminated commercial and residential buildings in the areas surrounding the WTC, businesses needed alternative office space and people lost their jobs. There was an immediate drop in tourism.

Indeed, businesses throughout the nation that are dependent upon tourism and travel lost income, just as did those located in the WTC and its environs. These businesses have made claims on their property policies to seek recovery of their lost profits. The typical claimant is a hotel in a tourist locale such as Hawaii or Las Vegas that relies on travelers who arrive by airplane. With the grounding of all airplanes and the closure of all airports, hotels had an immediate decrease in occupancy and loss of income.

Some unique business interruption claims include those asserted by lessees in response to various aspects of being relocated, including the way relocation to a new space was handled by a landlord, the cleanup efforts in the damaged prior space, and rental obligations.

As September 11 claims and suits are adjudicated, judges, juries, and lawyers will be required to address issues under previously unthinkable circumstances. These issues will be resolved based on a combination of unique factual situations and contractual terms. The outcome of the insurance claims and litigation arising from September 11 will affect the manner in which the corporate community and the insurance industry manage their exposures and calculate the financial risks that they are willing to assume in the future.

The above are excerpts from an article co-authored by Jean M. Lawler and Kenneth E. Goates and published in the September 2002 issue of Los Angeles Lawyer. As a post-script, the federal court has since ruled that there is one occurrence under several of the WTC policies and a Louisiana court has held that a hotel in its state was not entitled to business interruption coverage under civil authority coverage, the hotel not having suffered a direct physical loss. Current terrorism information, pleadings and articles are maintained on the Terrorism page of www.thefederation.org. If you would like to receive a complete copy of the article as published in Los Angeles Lawyer, please contact Arleen Milian at (213) 623-7400 or by e-mail at amilian@murchisonlaw.com.